Have we learnt any lessons from East African collapse?

By Abbey Kibirige Semuwemba
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Dear Ugandans,
There are so many coalitions, organisations and federations that have been formed in a dictatorial environment. Some have worked and others have not but the difference with the East Africa Federation is that some states in East Africa are going through serious economic and political reformation particularly Rwanda and Kenya. Uganda is still politically immature and that can be seen by every citizen of East Africa, but is that enough reason not to promote this federation, I don't think so. An East African Federation is a good idea and I support it whatever the environment. Some times, a man needs to marry a bright, clean, intelligent and hardworking woman to reform himself. That's why some people say that there is a woman behind every man's success and it is indeed true. The ghosts disturbing Uganda may never be removed by Ugandans alone. We need a partner to help us fight these bad ghosts.

Having said that, I'm also supporting a Uganda federation within an East African federation. This will be a bonus if we achieve the Uganda federation first before the East African federation. Buganda and some parts of Uganda are rightly asking for federalism within Uganda and there is nothing wrong with this. Like Dr.Besigye explained one time on Ngoma radio, federalism was demanded by majority of Ugandans and therefore it's not a Buganda issue alone.

The most important question here is 'Have we learnt any lessons from East African collapse? Let us look at the economics of the East African Federation. This federation collapsed once mainly because of the economics that were involved. If the current architects can create good economic policies, the East African federation will be a rock for all members involved. Therefore,we need to look at why the East African Common Market or the federation collapsed in the first place and if those factors have been corrected. If not, we are in danger of not learning from history.

First, the common market was founded in 1917 and collapsed in 1977. This idea was started by the British colonial government to serve British business interests and those of the British settlers in Kenya. The aim was to create a free and integrated market, sheltered by selective high tariff walls to simultaneously encourage Kenyan settler- businessmen and the expansion of foreign manufactured exports into East Africa.

This meant that the gains from a Customs Union were either not reaped or the distribution between partner states was not 'equitable'. When Uganda, Kenya and Tanganyika got independence, the distribution issue caused instability and led to the collapse of the common market. Will Kenya not again be the top beneficiary at the expense of other partner states? Are the British still having a hand in this idea or it's an independent one among member states?

Secondly, the federation is going ahead without assessment in the industrial bases of the partner states, yet this was a major factor in the first collapse. Kenya ,like before,has a higher manufacturing and services sector. This industrial imbalance indicates lack of equity in the distribution of integration benefits. These mistakes were neither corrected by the 'Raisman Commission' in 1960 nor by the Kampala/Mbale Agreement in 1964/5. The latter was never implemented because the Kenya parliament refused to ratify it and the proposed committee of industrial experts was never set up.

After the failure of the Kampala Agreement, cooperation became so shaky that the Philip Commission was appointed to save the common market. The commission resulted in the treaty that established an East African Community consisting of a common market and a wide range of common services. Again in this treaty, most activities had their headquarters in Kenya. Have we taken note of this? Is Kenya going to continue playing the role of the 'boss' as it was before?

Let me give you an example of the East Africa Development Bank, established with the aim of promoting balanced industrial development. A differential investment formula was proposed and enjoined on the bank so that it should have loaned, guaranteed or invested over the consecutive periods of five years slightly more than 38 percent of its funds to Uganda and Tanzania each and the remaining 22 percent or so to Kenya. This failed for reasons well known to some architects of this federation. Have they corrected them?

However,I'm happy that the architects of the East African Federation are rectifying some of the mistakes that led to the final collapse of the federation on July 1st, 1977. For instance,having a single currency among member states by 2012 is a step in the right direction. It will some how lead to balanced development among member states considering other factors remain constant. If we look at the last monetary policy developed by the 1967 East African Community that involved unified exchange rates, it led to a situation whereby the residents of Uganda and Tanzania preferred to keep their money in Kenya currency where there was greater availability of industrial goods for consumption. This made the Kenya currency to emerge as the stronger currency and the development of a black market situation whereby sh.1U ≥ sh.1 T < sh.1 K. Over time the Kenya currency grew stronger while those of Uganda and Tanzania were becoming weaker and this eventually affected the working of the East African Community Corporations by creating the problem of 'inter-territorial transfer of funds'. The policy also led to a decline in reserve positions of both Uganda and Tanzania because of currency flights from these two countries, thus exasperating the need for further exchange controls.

Chapter VII, article 24 of the 1967 Treaty for East African Corporation, provided for exchange rate unification between the three partner states. Exchange rate unification means a situation where ��'the relative per values of the currencies of the members of the common market remain irrevocably fixed while their absolute par values when changed at all would change in the same proportion''. The three currencies were to be exchanged without restriction at the IMF parity of shilling 1U = sh.1 k = sh.1 T. The rate of inflation was assumed to be equal since the absence of equal rates of inflation would automatically mean that a unified exchange rate situation no longer stood. The three currencies for purposes of parities vis a vis the outside were tied at different times to foreign currencies (British pound, US dollar) and to the IMF special drawing rights.

Considering that the three East African countries had different economic problems and different strategies for solving those problems, the policy of exchange rate unification which is inconsistent with the pursuance of different monetary policies present real problems in theory as it did in practice with East Africa. For example, On 7 February 1967, Nyerere issued a statement of party principles called the Arusha Declaration in Tanzania that called for nationalisation of Banks and large enterprises in Agriculture, manufacturing, construction and commerce. In May, 1970, Uganda also announced a leftist policy at Nakivubo. These two policies created uncertainty and adversely affected business confidence in these countries in the long run. Both countries imposed exchange control policies with the other partners to prevent capital flight. This situation created differences in the three currencies as viewed by residents and non residents of the common market, seeking to invest in East Africa. Hence the policy of unified exchange rates does not seem to have worked well for East Africa.

Abbey Kibirige Semuwemba